To mitigate the impact of Covid-19 induced economic fallout, the Reserve Bank of India on Friday further reduced key lending rates by 40 basis points to historic low levels.
RBI Governor Shaktikanta Das said the Monetary Policy Committee of the central bank in an unscheduled meet has reduced the key – repo – rate to 4 per cent from 4.40 per cent.
Consequently, the reverse repo rate has automatically been reduced to 3.35 per cent 3.75 per cent.
Besides, the apex bank took other major decisions keeping in mind the devastating economic impact of Covid-19 pandemic. In one such decision, the Reserve Bank extended the moratorium on interest payments on all term loans for another three months. It also allowed for repayment of accumulated interest on account of the moratorium through FY21.
Meanwhile, Moody’s Investor Service projected the Indian economy to contract in the current fiscal, downgrading its 8 May update which estimated 0 per cent growth in FY21.
Moody’s said the loan guarantee scheme for working capital loans to micro, small and medium enterprises would not be sufficient to fully shield the sector from the effects of the economic shock as they were already under financial strain before the Covid-19 crisis. Coming days will be crucial. Let’s wait and watch.